Bangkok--30 Sep--Standard & Poor's
Standard & Poor's Ratings Services lowered its rating on Riverside County Redevelopment Agency, Calif.'s Desert Communities project area (DCPA) series 2010D senior tax allocation bonds (TABs) to 'BBB' from 'A-'. At the same time, Standard & Poor's lowered its rating on the agency's subordinate series 2011D TABs to 'BBB-' from 'BBB+'. The outlook on the TABs is stable.
"We base the downgrade on what we view as continued declining trends in project area assessed value, which has reduced maximum annual debt service coverage to thin levels," said Standard & Poor's credit analyst Sussan Corson.
The rating reflects what we view as the DCPA's:
Continued assessed value (AV) declines in fiscal 2012 and large declines in home prices for some communities within the project area; and
Thin 1.09x senior maximum annual debt service (MADS) coverage and very thin 1.03x senior and subordinate MADS coverage by the fiscal 2012 incremental tax levy.
These weaknesses are partially mitigated, in our opinion, by the project area's:
Diversity and geographically large size, with room for future AV growth;
Base year-to-total AV volatility ratio of 0.09, suggesting relatively proportional sensitivity in tax increment revenues to overall fluctuations in AV; and
The agency's inability to issue additional debt secured by a senior lien of the project area's pledged revenue due to agency covenants in the indenture of the subordinate-lien TABs, which effectively closed the lien on the senior bonds while the subordinate debt remains outstanding.
The stable outlook reflects Standard & Poor's expectation that DCPA AV should stabilize due to slowing rate of decline as well as the recent processing of Proposition 8 assessment reductions already reflected in the roll as well as relatively low appeal activity and historical success rates in the DCPA. However, should additional home price declines weaken the tax base further, we could lower the rating.
The series 2010D TABs are secured by a first-lien on tax increment revenues from the project area, net of the 20% set-aside requirement for low- and moderate-income housing and tax increment "passed-through" to underlying taxing entities pursuant to separate tax-sharing agreements. The senior 2010D TABs are on parity with tax increment pledged under loan agreements to the Riverside County Public Financing Authority's series 2004 and 2005 bonds, secured by revenues from all of the agency's five project areas as well as the series 2006A bonds, secured by revenues from the agency's Jurupa Valley project area, I-215 project area and DCPA. The series 2011D subordinate tax allocation bonds are secured by a second-lien on tax increment revenues from the agency's DCPA.
The DCPA encompasses 29,590 acres in six subareas spanning from Blythe to Thousand Palms, including the communities of Mecca and Palm Desert.
RELATED CRITERIA AND RESEARCH
USPF Criteria: Special-Purpose Districts, June 14, 2007
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Media Contact:
Ola Fadahunsi, New York (1) 212-438-5095,
[email protected]
Analyst Contacts:
Sussan Corson, New York (1) 212-438-2014
David G Hitchcock, New York (1) 212-438-2022